Market Commentary 22nd April 2025 – from Charlie Hancock

The Office for National Statistics (ONS) reported that headline annual consumer price inflation in the UK slowed from 2.8% in February to 2.6% in March. The headline inflation print was lower than the median economist estimate. Services inflation, which has been a particular area of concern for the Bank of England (BoE), slowed by more than expected, falling to 4.7% per annum.

The UK’s unemployment rate remained at 4.4% in March, which helped alleviate concerns around a weakening UK labour market. Wage growth in the three months to February was 5.9%, rising from the 5.8% recorded for the previous three-month period.

The European Central Bank (ECB) delivered a further interest rate cut last week, taking their key deposit rate to 2.25%. The cut was widely expected given recent comments from the ECB, with the central bank suggesting that looser monetary policy would be appropriate given the rise in uncertainty regarding global trade.

A closely watched economic sentiment index for the Eurozone declined sharply during April, falling to the lowest level seen since Russia’s invasion of Ukraine in 2022. The organisation responsible for compiling the index, ZEW, stated that “erratic changes” in US trade policy impacted investor confidence during the month. ZEW also said that the sectors most vulnerable to trade disruptions, such as automotives and chemicals, are now facing growing uncertainty after a period of brief stabilisation.

Investor sentiment in the US was impacted by growing tensions between President Donald Trump and the chair of the Federal Reserve, Jerome Powell. US equities sold off after Powell delivered a speech which appeared to criticize the tariffs implemented by the Trump administration, with the Fed chair stating that the likely economic impact would be slower growth and higher inflation.

Powell also hinted that interest rates would be kept on hold, with policymakers “well positioned to wait for greater clarity before considering any adjustments”. President Trump responded by calling Powell “Mr. Too Late”, while describing him as a “major loser”. The President’s comments appeared to prompt some concerns amongst investors.

Official data in China showed that the economy expanded by 5.4% during the first quarter of 2025, which was better than expected. Some economists noted that an increase in orders from the US ahead of the Trump administration’s tariff increase may have temporarily boosted exports. It is widely expected that authorities in Beijing will look to draw up further fiscal stimulus plans in an effort to meet the country’s official 5% economic growth target for the 2025 financial year.

Data in Japan showed that the US tariffs on steel and aluminium implemented in March dented Japanese exports for the month. Exports rose by 3.9% year-on-year, which was less than the median economist estimate of a 4.5% increase. The governor of the Bank of Japan (BoJ), Kazuo Ueda, suggested that the uncertainties around US trade policy could delay the timing of the central bank’s next interest rate hike. Ueda stated that supportive monetary policy may be warranted, which contributed to growing expectations for no rate hikes in the near future.

The week’s inflation and unemployment data appeared to support confidence on the UK economy, contributing to gilt yields declining last week.

The ECB cut rates for the seventh time in a year, which contributed to Eurozone government bond yields declining last week. The central bank’s president, Christine Lagarde, stated that downside risks to economic growth have increased, which supports the central bank loosening monetary policy.

GBP / EUR – Current 1.1666 Previous 1.1521

The Pound gained 1.60% against the US Dollar last week, with the Dollar experiencing continued weakness against most major currencies. Against the Euro, the Pound rose by 1.26%. Currency traders appeared bullish on the Pound following the week’s UK economic data releases.